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Diageo faces fight to regain investor confidence as Mexican sales slow

Pints of Guinness are seen in a pub, in Dublin, Ireland March 20, 2023. REUTERS/Clodagh Kilcoyne/File Photo
Pints of Guinness are seen in a pub, in Dublin, Ireland March 20, 2023. REUTERS/Clodagh Kilcoyne/Fil... Pints of Guinness are seen in a pub, in Dublin, Ireland March 20, 2023. REUTERS/Clodagh Kilcoyne/File Photo
Pints of Guinness are seen in a pub, in Dublin, Ireland March 20, 2023. REUTERS/Clodagh Kilcoyne/File Photo
Pints of Guinness are seen in a pub, in Dublin, Ireland March 20, 2023. REUTERS/Clodagh Kilcoyne/Fil... Pints of Guinness are seen in a pub, in Dublin, Ireland March 20, 2023. REUTERS/Clodagh Kilcoyne/File Photo

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Diageo (DGE.L), the manufacturer of Tanqueray gin and Johnnie Walker whiskey, is fighting to rebuild investor confidence after issuing a profit warning last month. The company is also trying to revitalize its faltering Latin American operation.

Diageo issued a warning last month, citing a build-up of unsold stock in Mexico as part of the predicted 20% decline in sales in Latin America and the Caribbean during the first half of the company’s fiscal year.

Its shares dropped to almost three-year lows as a result of that. Since the warning last month, they have decreased by 22% year to date and have been stagnant. Five Diageo shareholders who spoke with Reuters said the corporation handled the warning’s build-up poorly.

By the end of September, the company—which also produces Don Julio tequila—had stated that trade was proceeding as planned. It stated subsequently that it didn’t realize there was a problem until October when orders were less than anticipated.

Heptagon Capital’s fund manager, Christian Diebitsch, remarked, “They should have done their homework better.”

Executives from Diageo have stated that they had little knowledge of sales at Mexican wholesalers and retailers; therefore, the issue wasn’t discovered until it was too late to fix.

The holiday season is crucial for Diageo to regain its sales momentum in Latin America. However, Mexican wholesalers report that demand for high-end brands like Tanqueray gin and Johnnie Walker gin is still behind that of less expensive competitors.

This makes it more difficult for wholesalers to get rid of excessive inventory. One person acquainted with the situation said Diageo’s expectations for October’s spirits sales in Mexico were unmet. This was concerning because specific important clients had built up five months’ worth of stock in the months before.

Because they were not allowed to talk about the matter, the source chose not to give their identity.

According to Mexican wholesalers, sales of premium spirits were sluggish in the sector as consumers with limited funds chose less expensive alcohol.

Following Mexico’s “Buen Fin” weekend from November 17 to 20, Joan Manuel Garcia, the e-commerce manager of alcohol distributor Prissa, said that almost half of the top Diageo brands were still available in his company’s leading shop.

He said, “Sales of its premium spirit were flat compared to last year.”

The manager of a wholesaler Alianzia location in Mexico City stated that the store still had 85% of their premium alcohol inventory from early October following “Buen Fin.”.

According to statistics from market analyst NIQ, November was the best month for online alcohol sales in Mexico last year because of the “Buen Fin” campaign, modeled after Black Friday.

When Diageo released its first-half earnings on January 30, a representative told Reuters that the company would update its operations in Latin America and the Caribbean, including its steps in that region.

At 08:43 GMT on Wednesday, its shares increased 1.3% compared to the market.

TREMURED AUTHORITY
The five investors said that the failure in Mexico had caused them to lose faith in Diageo’s ability to lead and to scrutinize Diageo’s new CEO, Debra Crew, who assumed the position in June when Ivan Menezes passed away.

More significant issues raised by some investors were the company’s diminishing market position in its largest market, the US, and a global slowdown in growth in premium spirits following the post-COVID boom.

Crew, a former military intelligence officer, has worked in the consumer products industry for 25 years, holding managerial positions at American tobacco manufacturer Reynolds American, among others.

In 2020, she took on her first executive position in the spirits industry as president of Diageo North America. She had been employed at PepsiCo for two years in non-executive capacities.

“My concern is whether Crew has the appropriate structure to handle such challenging situations,” stated Johannes Hesche, a Diageo investor and fund manager at Acatis.

According to Moritz Kronenberger, a portfolio manager at Union Investment in Germany and another shareholder in Diageo, good news from the company’s planned January update is essential to winning back investor trust, he told Reuters.

“Show me the results and then I can believe in the growth of the stock again,” he stated


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